| This may be about as good as it’s going to get for the housing recovery, suggested Paul Willen, a senior economist at the Federal Reserve Bank, in a speech this morning. But that may not be as bad as people think.
Willen gave a brief overview of the current conditions in the economy that are affecting the housing market to attendees at the New England Appraisers Expo, held at the Sheraton Four Points in Norwood. He was sanguine about the prospect of the Fed’s tapering of its bond purchasing program raising rates later in the year, suggesting that the global economic factors would continue to hold bond rates down, as current yields on American Treasuries are actually higher than other countries.
He also skewered a number of other popular views on the recovery, suggesting that current data doesn’t support the idea that the market is being held back because people simply have too much debt or because tight credit is preventing many people from getting mortgages.
"One of the things you hear is that, ‘Oh, it’s only rich people who can borrow; there’s a housing recovery, but only for the rich.’ That’s not what we see in the data," Willen said.
The number of people applying for and receiving mortgages with credit scores between 620 and 720 – generally considered solid credit risks – is about the same now as it was before the housing crash, Willen said, across the income spectrum. While Fannie and Freddie have tightened their own underwriting standards, many of the applicants who can no longer qualify for conventional mortgages are able to obtain FHA loans, he suggested.
Instead, Willen pointed to the "Ability to Repay" rules currently being implemented as part of the Dodd-Frank Act reforms. For the most part, the rules rely on wages and salary as the key criteria for determining an applicant’s ability to repay a loan, and there is a significant chunk of the applicant pool, particularly at the high end, who receives its primary income from other sources, such as annual bonuses or profits from a business. Former Fed Chief Ben Bernanke recently confessed that his own application to refinance his mortgage had been turned down, and Willen suggested that his lack of a steady income – Bernanke is writing a memoir, and also makes speeches, for a reported $250,000 fee – was the likely culprit in causing the bank to turn down the application.
However, Willen did point to one factor that could hold back the economy from again attaining the robust growth rates seen in the late 1990s: A long-term decline in the workforce participation rate. Recent improvements in the job market have not proved enough incentive to drive many workers back into the job hunt, suggesting that there may be structural economic factors affecting people’s ability to get a job, Willen said.
According to Willen, while economists are generally lousy at forecasting, he does believe that emerging technologies like Google’s self-driving cars could prompt huge, fundamental changes in the nature of work over the next couple decades, which will have profound effects on the economy going forward.
"Today, about three and half million people make a living driving vehicles. What are they all going to do? Where did all the typists go? The answer is, we found something for them to do. But it takes time," Willen said. "I think what’s happening with labor force participation is the beginning of the manifestation of this transformation of labor. In a sense, all bets are off … as Larry Summers has said, it’s ‘the end of toil;’ we’ll be in a place where computers can do most routine tasks."
